Merrill Team Leaves to Protect Fee Flexibility

After 11 years at Bank of America/Merrill Lynch, advisor Ira Katz and his team have left to start The Choice Group Wealth Management, an independent practice in Melville, N.Y. While at Merrill, the group managed about $420 million. The new firm uses LPL Financial’s hybrid brokerage and RIA platform.

Q: Why did you leave Merrill Lynch?

A: A lot of rule changes have been taking place lately in our industry. We just felt like in order to serve as true fiduciaries, we could no longer stay at Merrill Lynch.

Q: How so?

A: Our prior firm took a stance that all of our retirement clients should be in fee-based managed accounts. We just feel as a fiduciary the fee-based solution isn’t right for every situation. We’re still big fans of fee-based managed accounts – in fact, our business is primarily fee-based. But we don’t want to force fee-based accounts on everyone. No one thing is right for every single person.

Q: Merrill has just recently decided to review that policy, hasn’t it?

A: In light of how many brokers have fled the firm, they’re contemplating in brokerage retirement accounts to allow purchases of CDs and money markets. So that really reinforces our original concerns. We were worried about not being able to do the right thing for our clients, and in turn, being liable as a practice.

Q: If the DOL rule isn’t implemented, does that impact your decision to move?

A: No. Merrill Lynch has made it very clear that they took this stance and they’re going to stick to their interpretation of the DOL rule. I just don’t see that changing a whole lot no matter what happens with the rule.

Q:Did you consider joining another wirehouse or becoming an employee of a big brokerage?

A: Yes. Before making our selection we did a ton of due diligence comparing different fees and services. In the end we gave up a lot of money by passing on the wirehouses, which were offering big upfront checks.

Q: Why did you decide to do that?

A: We felt that going to another big brokerage could easily put us into the same situation we were in before. For example, Morgan Stanley just announced they were removing Vanguard from their investment platform. So we just didn’t want to be in a position of rolling the dice in terms of how a home office might interpret different situations and circumstances.

Q: Why did you decide to completely break away?

A: Everyone has their own set of rules, whether they’re an independent brokerage or a global bank. Even if we went somewhere else, they’d have a different interpretation of the DOL rule and other fiduciary considerations. So we wanted to be able to control on our own that type of decision-making process.

Q: How is this move going to help your clients?

A: In the independent corporate model, there is one set of fees. But as a hybrid independent advisor using LPL’s brokerage and service platforms, we’re able to avoid some fees that might otherwise exist. It also allows us more access to different investment strategies.

Q: How do you expect this move to help your firm to grow?

A: We’re now planning to grow both regionally and nationally. Part of our plan is to bring aboard new advisors by offering them the look, feel and benefits they’d find at a major wirehouse. At the same time, we want to enhance that experience by providing advisors and their clients the benefits that come along with full independence.

Q: What advice would you give other FAs who are thinking about making a move?

A: I would tell them to not be cheap with the amount of time they put into doing a proper amount of due diligence ahead of any move. And most importantly, consider the big picture – why are you making a move? Try to imagine where this industry might be 20 years down the line and how that might affect your clients.